Equity allocations recorded second-biggest drop on record, while cash holdings rose the most since 2011 debt-ceiling crisis
Long US Treasuries are now the world’s most crowded trade, for the first time in the history of the BofA-ML survey
Levels of pessimism are fast rising among global fund managers. In fact, investors are most bearish since the global financial crisis, says a Bank of America Merrill Lynch survey of money managers.
Some of the key concerns are the ongoing US-China trade war and the slowdown in the global economy. Other factors such as “monetary policy impotence" have also dented investors’ confidence.
With all these factors at play together, expectations about global growth have taken a back seat.
Half of those surveyed anticipate global growth to weaken over the next 12 months.
“This is consistent with 2000/01 and 2008/09 recession levels," said the Bank of America Merrill Lynch survey report.
The outlook on inflation isn’t bright either.
Only 9% of respondents foresee a rise in global retail inflation in the next 12 months—the most bearish inflation outlook since August 2012.
In this gloom, it is hardly surprising that money managers either prefer to sit on cash or seek refuge in less risky assets.
Long US Treasuries are now the world’s most crowded trade, for the first time in the history of the survey. Further, equity allocations recorded the second-biggest drop on record, while cash holdings rose the most since the 2011 debt-ceiling crisis.
“Fund manager survey allocation is implying recessionary conditions," Bank of America strategists led by Michael Hartnett said in a note.
“Investors are overweight assets that outperform when interest rates and earnings fall and underweight those positively correlated to rising growth and inflation."
The International Monetary Fund is also worried about the impact of trade conflicts on the global economy. It has trimmed its growth forecast for the current year. The International Monetary Fund expects the world economy to grow 3.3% this year. That’s 20 basis points down from its previous outlook of 3.5%, which was also a downgrade.
Meanwhile, the crucial two-day meeting of the US Federal Reserve is underway.
Philip Wee, FX Strategist, DBS Bank said in a note, “With equities resilient through this episode of lower US yields and US data not showing clear signs of weakness, it is difficult to justify looser monetary policy on fundamental or financial conditions arguments. The only conceivable way would be to highlight downside risks due to prolonged China-US trade tensions. Unfortunately, there is lack of clarity on this front and it is uncertain if anything can be resolved at the G20 meeting later this month."